Changes in Prices of the Related Goods: The demand for a good is also affected by the prices of other goods, especially those which are related to it as substitutes or complements. In industrial markets, the capability of salespeople to explain a high price to customers may allow them to charge higher prices. To learn more about marketing or promotions, today. Sometimes the customers are told the cheaper product is no longer available. Product life cycle: The stage at which the product is in its product life cycle also affects its price.
Cost: While fixing the prices of a product, the firm should consider the cost involved in producing the product. In such a case, the supply of his product would be 50kgs at Rs. Relative negotiation skill and bargaining leverage of the parties: As a buyer, the premium you will need to pay will be influenced by your negotiating skills, bargaining leverage and time constraints. Meaning, if your product is priced too low, the customers tend to feel the materials used in producing the goods is inferior and so therefore, the product is of low quality. You let each customers announce how much he wants to pay and pick the highest bid. Government policy: These days the government plays an important role in determining the location of new industries. So before fixing a price for your product, make sure you strike a balance between the price of your product and its perceived value.
The development of the dying and printing industry in Farukhabad and the glass industry in Ferozabad I have been mainly located there due to the availability of skilled labour in these towns. Direct to the customer may enable the manufacturer to charge a lower price, but selling through many intermediaries mean the final price is to be very high to compensate the efforts of intermediaries. The seller may have set the negotiation stage with an asking price and may have formed a floor or walk-away price as well. So how do you go about creating a strong pricing strategy? The company needs to endow each of its brands with an independent personality, and identify it with a segment. The changes in demand for various goods occur due to the changes in fashion and also due to the pressure of advertisements by the manufacturers and sellers of different products. What parts have to be manufactured in the factory itself and for what parts should depend on other firm? Because substitute goods are used one in place of another, rather than together, the demand for one will always decrease when the demand for another increases.
A company must take into account all three levels of competition. For instance, as a result of economic growth in India the incomes of the people have greatly increased owing to the large investment expenditure on the development schemes by the Government and the private sector. During recessionary conditions, the price level also drops, to maintain the same level of turnover. This content was accessible as of December 29, 2012, and it was downloaded then by in an effort to preserve the availability of this book. . You perhaps have seen bait-and-switch pricing tactics used to sell different electronic products or small household appliances. Size A complete analysis of these factors, will certainly help the entrepreneur to earn maximum profits by reducing the costs.
We will discuss more about price differences later in the chapter. Personal preferences: Location of any industry may sometimes be decided according to the personal preferences and prejudices of the industrial enterprises. Additionally, per the publisher's request, their name has been removed in some passages. What matters more is how consumers regard your product. Various sources of power now available are coal, hydro-electricity and oil etc. Advertisements are given in various media such as newspapers, radio, and television. As a student, you may also incur fixed costs such as the rent you pay for an apartment.
Do you know that having a strong product pricing strategy can give your business a competitive advantage? In other words, cheaper labor costs are justified with the claim that consumers will save money. About the Author Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. The Utility and Demand 3. Product cost refers to the total of fixed costs, variable costs and semi variable costs incurred during the production, distribution and selling of the product. As a result of the decline in incomes of the farmers, they will demand less of the cotton cloth and other manufactured products. While the demand for expensive luxury food items may fall when consumer income falls, companies that sell low-quality, high-fat ground beef may see a sudden uptick in demand for their product, given the fact that the meat is inexpensive and filling. Competition: While fixing the price of the product, the firm needs to study the degree of competition in the market.
Because complementary goods are used together rather than separately, the demand for complementary goods tends to increase in a side-by-side fashion. The channels of Distribution, location of warehousing and the transportation involved also influence the price determination. The needs of intermediaries must be kept in mind otherwise product launches may not be viable. Scope: It is advisable to plan before hand the scope of activities of the firm beforehand. The firm has to take decision on the above question and other allied problems finally setting up the unit keeping in view that the unit cost in producing and distributing of the product or service should be the lowest and the changes of making maximum profits are the brightest. Below are some pricing objectives you may want to consider.
In that instance, isn't it reasonable to assume that companies simply made the decision to use cheaper labor to increase profits? Setting prices too low can convey the message to consumers that your product isn't as good as other similar products on the market. In low season, you have to cover your variable costs only. For example, availability of cheap labor and raw material nearby the manufacturing plant of an organization would help in reducing the labor and transportation costs. Put your price in terms people will understand. A good example would be focusing more on your service and quality advantages, product differentiation using new and existing differentiating features. The marketer prepares separate curves for normal products and prestige goods.
Inflation in economy is an important factor in pricing. At a later stage, it produces a range of brands at different price points, which serve segments of varying price sensitivities. Moreover, the buyer is ready to pay up to that point where he perceives utility from product to be at least equal to price paid. Your price is a part of your brand image. Nature of the market and demand: What is the expectation of the market about the product or services? Time plays a vital role in acquisition negotiations. In the world of business, product and price are part of the 4Ps of marketing.
It is important that the company anticipates the discounts that it will have to grant to gain and retain business and adjust its list price accordingly. Pricing decisions are affected by federal and state regulations. Consider Economic Signals Despite the conventional wisdom — setting too low of a price can actually decrease demand for your product. Overhead or costs that remain the same regardless of the level of production or the level of sales. Generally, the supply of a product depends on its price and cost of production. The longer the chain of intermediaries, the higher would be the prices of the goods.